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Statement on the 2002 Budget, Dáil Éireann


Statement by the Taoiseach Mr. Bertie Ahern TD on the 2002 Budget - Dáil Éireann, Thursday, 6 December 2001

This year's Budget, the fifth and last of the current series, is a prudent Budget, and a Budget that is committed to the urgent task of underpinning national development. But, above all, it is a caring and equitable Budget, in keeping with our radical social philosophy.

As a country we have made magnificent progress, which is recognised everywhere, over the past 4 years. Our earlier Budgets were central to boosting confidence and prolonging, as long as international circumstances allowed, an unprecedented period of high growth, which has allowed us to catch up with our European partners.

While last year's record growth of 10% is likely to be halved this year, international agencies are still predicting that we will head the international growth league in 2002. It is not a bad achievement for a small country. We have used every opportunity available, to create what is close to full employment, to give us a competitive tax system in place of the unfair tax burden working people had to bear before, and to set out long-term plans in every area where we badly need progress. When we took office, unemployment still stood at 10%, whereas today it is down to around 4%. In addition, numbers at work have increased from about 1.4 million to over 1.7 people. Getting so close to full employment is the biggest social achievement in the history of the State. No one will be surprised that it was achieved when Fianna Fáil was in Government, along with our PD partners.

We have used our opportunity to the full to do the maximum for social inclusion in other ways as well. Indeed, the emphasis of this Budget is all directed towards the least well off, and improving public services.Given the slowdown in the world economy, this Budget is a fine achievement. We have managed for the fifth year in succession to avoid any Government borrowing. The Labour Party in contrast, have urged us to borrow over £1 billion and to raid the national pension reserve fund. Where would confidence be today, if we had followed that advice? We are not going to return to the bad old days of 1970s - style deficit economics. As we can see from the experience of other countries, it is very easy to allow the public finances to deteriorate quickly and to get into a hole. That does not bring benefits to everyone, and just means expenditure cuts, higher taxes, higher unemployment, and a steep rise in poverty.

What situation the Government will face this time next year is difficult to predict. But projections for 2003 and 2004 show a General Government Deficit of 0.6% of GDP, comfortably within the 3% allowed by the EU Stability Pact. Many larger countries are already bumping up against that ceiling. In looking at our absolute figures, commentators are apt to overlook the 1% of GDP being set aside for pensions, and that has all to do with the long-term sustainability of the public finances.

The public will need to decide next summer, whether they really want an alternative government not up to the job, that is going to ring the alarm bells, panic and destroy confidence, as opposed to an experienced administration that will cope in the best available way with all eventualities.

It was a bit hard to listen here to a lecture in the usual tone of effortless superiority from a former Minister for Finance Deputy Dukes, who, despite his best efforts never succeeded in the 1980s phasing out even the current budget deficit, or getting anywhere near it, criticising a Minister, who in five years has not borrowed in net terms a single penny and who will have left the debt well below the level he found it. Minister has very properly marshalled available resources to avoid a plunge into borrowing at this stage, before we have any real idea of how long the economic slowdown is going to last. All the measures that he has announced have to be passed into law and confirmed by the Oireachtas. The prudence and the margin of safety created over recent years has paid off. If this is not a rainy day, I am not sure what is.

I find it laughable that the Labour Party, whose spokesperson has been urging us to raid the pension fund all year, becomes all concerned that we are using the surplus in the Social Insurance Fund to part-fund increased social benefits. How often has the State had to put in extra funding? The Social Insurance Fund is based on a tripartite principle. The Exchequer has assisted it in the past through substantial transfers for most of its history when it faced a deficit. There is nothing untoward in the Fund reciprocating. Even after the event, there will still be a large and growing surplus in the Fund of 1.2b EURO. There is no question of contributors' benefits being put in doubt.That should be made clear.

We are dealing here with surpluses, and surpluses mean amounts above and beyond requirements. Is it not reasonable to recover some of the Exchequer's earlier contributions, particularly as we are putting much more money in on the other side anticipating future deficits in the Social Insurance Fund in relation to pensions? In net terms, far from raiding the Social Insurance Fund, this Government has decided to prepare to beef it up in the future, to loud complaints from the Labour Party.

The other focus of attention is the transfer from the Central Bank. In the case of the coinage, the ultimate property right in the profits from issue of the coinage has always been the Minister for Finance's . That's clear in the legislation since 1927. In other countries, the profits go directly to the public purse. Here they accumulated in the Central Bank. What is being done is a legitimate exercise of the people's property right.The use of the windfall surplus to the Bank arising on the exchange of currency notes by the Bank is not unusual either. The position since 1942, when the Bank was set up, is that the Minister for Finance is entitled to have a portion of the surplus transferred to the Exchequer. Every Government has availed of that surplus, and that is what we propose to do. There is nothing out of the ordinary in this procedure.

What is different is that we are using these sums in a prudent manner by using them to help fund the National Pensions Reserve Fund where they will be effectively locked away for at least another 25 years. This is hardly an imprudent or incautious course. It is not what a raider would do.What is really upsetting the Opposition is that the Government have been able to put together a far better budget than they believed possible. When they cry 'foul', this is to be understood in political terms.

A £500m tax package is substantial in present circumstances. Personal tax relief this year is concentrated on lower income groups. The tables show that the proportional benefit of the tax changes is weighted towards those on low incomes. We have already been commended by the EU Commission for having a tax system that bears least heavily on the low-paid. The minimum wage was originally a Fianna Fáil initiative at the last Election, which this Government has implemented. 90% of it will now be free of tax. Those on the minimum wage are not always the poorest people in our society.

They would include many better off young people in part-time work, so it would be wrong to present this, as some have done, as the absolutely overriding social priority. It is a considerable achievement that following the Budget, 36% of income-earners will be paying no tax, and that those on the higher rate represent barely a quarter of all income earners.

The last few years have been a period of tremendous reform in the tax system. Rates have been reduced to a very tolerable 20% and 42%. Low or intermediate rates proposed by Labour and Fine Gael are just gimmicks, which do not hide the fact that their contribution to lightening the burden on the PAYE sector over the past 25 years has been either negligible or negative. This Government has truly liberated the PAYE taxpayer. We are proud of the reform that brought in tax credits, that had helped us produce fairer budgets, with the tax year now aligned to the calendar year.In net terms, this year we have had to raise revenue. There have been modest increases in indirect taxation. We have long been urged to raise excise on fuel for environmental reasons, and we have also increased the excise on high sulphur diesel as part of the National Climate Strategy. We would have done more on cigarettes for health reasons, but for the inflationary consequences.We also have brought the payment of Corporation Tax, where the rate is being reduced by 4%, more into line with the practice of our partners, and indeed what is required of the self-employed in relation to income tax. This is a very reasonable change that is being phased in over 5 years. None of these tax increases need impact on the poor, though I accept smokers are distributed throughout the population.

This is the first year in recent times that the social inclusion measures exceed by a wide margin the cost of the income tax package, £850m as against £500m. The social inclusion package for the second year running is three times the size of the package in the Rainbow's last Budget. Weekly payments have increased by £8, £10 and £12. This compares with an average £3 a week increases in their 1997 Budget. When it comes to social progress, Fianna Fáil and the PDs have consistently left Fine Gael and Labour in the shade.I am immensely proud of what this Government has achieved on child benefit and old age pensions over our five Budgets. Child benefit after the 1997 Budget was £30 a month for the first two children, and £39 for third and subsequent children. In 2002, child benefit will be over £92 a month for the first two children and £116 a month for third and subsequent children.

The old age pension has increased by almost £50 from £67.50 in 1997 to £116 in 2002, and a married couple have increased from just over £100 to just under £200. Increases before 1998 simply kept pace with inflation, and more and more older people were falling into poverty. This year's increase is over 9%. Furthermore, the old age pension will next year be at least 30% of the current average industrial wage. The sensible policy is to raise other payments, as and when this is possible. It would be my objective into the future to pursue a strategy of increasing other payments, as resources permit, so that a broadly similar level in relation to average living standards in the community can in due course be achieved for all social welfare recipients.

This Government has given a very high priority to investing in our health services. As a result of the additional spending announced yesterday, health funding will be 134% higher than when we came to office. This represents the largest sustained increase in health funding in the history of our health services.Deputy Mitchell yesterday claimed that this funding is having no impact. In fact, he even supported his leader's claim that the health services were better under his stewardship. As with so many areas, this is a case of the Opposition making up the figures, when they don't like the facts.Deputy Mitchell yesterday claimed that the current waiting list figure represents a 91% increase since we took up office. The figures publicly available and given to this House show that they are down over 13%. In contrast, the waiting lists rose by an unprecedented 6,500, or 28%, when Deputies Noonan and Quinn were in charge.

As a result of our increased investment, more and better paid professionals are delivering significantly more services. This year;

· Over 4,000 more doctors, nurses, dentists and paramedics are delivering care than in 1997;

· 90,000 more hospital treatments are being carried out than in 1997;

· There are over 4,000 more day residential and respite care places to help people with disabilities and their families than there were in 1997.

These are real improvements, making a real difference in the lives of real people. But we have always said that we see the work to date as a foundation. We have set out our plans for building on this foundation, and the Budget has provided for the first phase of development.

The Health Strategy which we launched last week is the most comprehensive and ambitious document of its type ever launched. It has received wide support. The Patients' Association for example has called it "Welcome and well thought out". It is a strategy of investment and reform which will achieve the permanent transformation of our health system.

Having failed to seriously challenge the strategy's proposals, the Opposition has attacked the fact that not every element of the Strategy will be implemented in year one. If you were to believe them, everything can be done at once.We are committed to increasing the coverage of the Medical Card Scheme. That is why we have already extended it to all people over 70 - the age group who rely most of all on our health services. We will go further in our next term. What I find most extraordinary in the Opposition's attack on this point is the fact that the policy of indexation of income guidelines which we have implemented is exactly the one implemented by Deputies Quinn and Noonan. In addition, even though they demanded that the full Strategy proposal be implemented next year, Labour's pre-Budget statement did not mention either health or medical cards.

The additional funding which we have provided will deliver significant service improvements next year.

· It will end all over 12 month waiting for adults.· It will end all over 6 month waiting for children.

· It will provide over €100 m EURO to develop services for people with disabilities.

· It will fund a major expansion in supports for older people

· It will extend 24-hour GP cover nationwide; and

· It will ensure important developments in areas such as cardiac care, cancer care, child care and youth homelessness.

We will go before the people with a record of developing our health services and planning for the future which will far outstrip any previous Government.We will also have shown our commitment to investing in the future by investing in education. We have comprehensively reversed the policy of our predecessors, which saw Deputy Quinn's January 1997 Budget include a freezing in school funding and cutback in teacher numbers.

In contrast, direct school funding for primary schools is now over two-thirds higher, and we are in the middle of a programme to hire 2,500 new teachers. We have achieved the lowest class sizes in the history of Irish education, and they are set to decline further. We have also opened up opportunity by increasing adult literacy funding over tenfold, and we have created over 15,000 new third-level places.During the last few weeks we have heard the Opposition attempt to claim that there has been a cutback in the funding for school building projects. The facts show that this is another complete misrepresentation of the truth. The January 1997 Budget allocated 74m EURO to all school building projects. Yesterday's Budget allocated €335m EURO, and the impact of this funding can be seen throughout the country. In 1997 there were only 22 large-scale school building projects underway. At the moment, there are 200 underway.

That shows a real and sustained commitment to our schools and to our education system. An OECD Study published this week saw Irish 15-year olds with the second highest ranking in Europe for literacy, significantly above average in relation to scientific literacy, and average in relation to mathematical ability. We have done better than many larger countries, ranking higher than the United States on all scores.We must continue to attach great importance to jobs. The reduction of employers' PRSI from 12% to 10.75% is a major boost to competitiveness, that largely compensates for the removal of the ceiling.We have also taken steps to remedy difficulties in the construction industry related to the housing market by restoring tax reliefs, and to increase the supply of apartments for renting which are urgently needed by young people.

The Government are totally committed to the implementation of the National Development Plan. We have topped up capital spending by over £400m, which includes what works out at 146m EURO for housing and 100m EURO for national road improvements. There is another 30m EURO for public transport. It should be remembered that the Exchequer was contributing nothing to public transport in 1997, which was relying on EU funding and borrowing, whereas 388m EURO is being provided next year. If we wish to criticise the lack of past investment in public transport, which has led the present gridlock, we need look no further than the last Government.

I would like to conclude by paying a warm tribute to the Minister for Finance and indeed to our partners in Government. The Minster with the support of his Government colleagues has done a remarkable job over the last 5 years, which will certainly enter the annals of any history of Irish public finance.The challenge over the next five years will be to maintain the very high level of confidence that this country enjoys, while spreading progress and prosperity, and giving people of all backgrounds opportunities they never had before.